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THE
CONTEMPORARY
WORLD
Prince Kennex Reguyal Aldama

Reu
ORLD
A

O3-O3OUTCOME
BASED
GEC Series
EDUCATION First Edition
 CHAPTER 3: MARKET INTEGRATION

Introduction . . . . 44

International Financial Institutions . . .44

The Bretton Woods System. 45

The General Agreement on Tariffs and Trade (GATT) and the

World Trade Organization (WTO) 45

The International Monetary Fund (IMF) and the World Bank. ..46

The Organization for Economic Cooperation and

Development (OECD), the Organization of
Petroleum Exporting Countries (OPEC), and
the European Union (EU). ..47

IV
 North American Free Trade Agreement (NAFTA).. --- 47

History of Global MarketIntegration... -.48

The Agricultural Revolution and the Industrial Revolution.. 48

Capitalism and Socialism.. 49

The Information Revolution.. -.-51

Global Corporations.. 53
 CHAPTER 3 MARKET INTEGRATION

Introduction
society is the economy.
on
ldl institution that has one ofthe biggest impacts
unemployed, gross
of the economy in terms of numbernumber of
TOu might think While we orten talk
domestic product (GDP), whatever the stock market is doing today.
or
It is the social instirution
dooutit in numerical terms, the economy is composed people. in the society. Inere are
of
trade of goods
dt Organizes all production, consumption, and about capitalism or
in which products can be made, exchanged, and used. Think
many ways that created t h e m
socialism. These economic systems-and the economic revolutions
shape the way people live their lives.
Economic systems vary from one society to another. But in any given economy,
extracts raw materials
production typically splits into three sectors. The primary sector
from natural environments. Workers like farmers fit well in the primary sector.
or miners
The secondary sector gains the raw materials and transforms them into manufactured
sector extracts oil from
goods. This means, for example, that someone from the primary
the earth then someone from the secondary sector refines the petroleum to gasoline.
Whereas, the tertiary sector involves services rather than goods. It offers services by doing

things rather than making things. Thus, economic system is more complicated or at least,
more sophisticated than the way things used to be for much of human history.

This chapter will show the contributions of the diferent financial and economic
institutions that facilitated the growth of the global economy. The history of the global
market will be discussed by looking at the different economic revolutions. The growth and
dynamics of multinational corporations that are emerging in today's world economy will

also be examined.

International Financial Institutions

World economies have been brought closer together by globalization. It is reflected

in the phrase "When the American economy sneezes, the rest of the world catches a
cold." But it is important to remember that it is not oniy the economy of the United States

hutt also other economies in the world that have a significant impact on the global market
and fnance. For instance, the financial crises experienced by Russia and Asia affected

World
The Contemporary
44
the world economy. The strength of a more powerful economy brings greater
effect on other countries. In the same manner, crises on weaker economies have
less effect on other countries. For example, Argentina's serious financial crisis in
the late 1990s and early 2000s had a comparatively small impact on the global

economy.
Although countries are heavily affected by the gains and crises in the world

economy, the organizations that they consist also contribute to these events.
The following are the financial institutions and economic organizations that made
ountries even closer together, at least, when it comes to trade.

The Bretton Woods System

The major economies in the world had suffered because of World War 1,
the Great Depression in the 1930s, and World War I1. Because of the fear of the
recurrence of lack of cooperation among nation-states, political instability, and
economic turmoil (especially after the Second World War), reduction of barriers
to trade and free flow of money among nations became the focus to restructure
the world economy and ensure global financial stability (Ritzer, 2015). These
consist the background for the establishment of the Bretton Woods system.
In general, the Bretton Woods system has five key elements. First element
is the expression of currency in terms of gold or gold value to establish a par
value (Boughton, 2007). For instance, a 35 U.S. dollar pegged by the United
States per ounce of gold is the same as 175 Nicaraguan cordobas per ounce of
gold. The exchange rate therefore would be 5 cordobas for 1 dollar. Another
element is that "the official monetary authority in each country (a central bank
or its equivalent) would agree to exchange its own currency for those of other
countries at the established exchange rates, plus or minus a one-percent margin"
(Boughton, 2007, pp. 106-107). The third element of the Bretton Woods system is
the establishment of an overseer forthese exchange rates; thus, the International
Monetary Fund (IMF) was founded. Eliminating restrictions on the currencies
of member states in the international trade is the fourth key element. The final

element is that the U.S. dollar became the global currency.

The General Agreement on Tariffs and Trade (GATT) and the World Trade
Organization (WTO)
According to Peet (2003), global trade and finance was greatly affected by
the Bretton Woods system. One of the systems born out of Bretton Woods was
the General Agreement on Tariffs and Trade (GATT) that was established in 1947

(Goldstein et al., 2007). GATT was a forum for the meeting of representatives
from 23 member countries. It focused on trade goods through multinational
Chapter 3: Market Integration 45
 trade
agreements conducted in many "rounds" of negotiation. However, "itwas
was
e Uruguay Round (1986-1993) that an agreement was reacnea to create

the World Trade Organization (WTOy' (Ritzer, 2015, P.

ne wTo headquarters is located in Geneva, Switzerland with 152 member
States as of 2008 (Trachtman, 2007). Unlike GATT, WTO is an independent
a t e r a l organization that became responsible for trade in services, non-
tai-related barriers to trade, and other broader areas of trade iDeraization.
example cited by Ritzer (2015) was that of the "differences between nations
t i o n to regulations on items as manufactured goods or food. A given nation
can be taken to
task for such regulations if they are deemed to De an
restraint on the trade in such items'" (p. 61). The general idea where the wro
unrair
IS Dased was that of neoliberalism. This means that by reducing or
eliminating
barriers, all nations will benefit.

There are, however, significant criticisms to WTO. One is that trade barriers
created by developed countries cannot be countered enough by WTO, especially
in agriculture. A concrete case was that the emerging markets in the Global South
made the majority in the WTO, but they suffered under the industrial nations
which supported the agriculture with subsidies. Grain prices increased and food
riots occurred in many member states
of WTO, like Mexico, Egypt, and Indonesia
in 2008. Aside from issues in
agricultural sector, the decision-making processes
were heavily influenced by larger trading powers, in the so-called Green Room,
while excluding smaller powers in
meetings. Lastly, Ritzer (2015) also pointed
out that International Non-Government
Organizations (INGOs) are not involved,
leading to the staging of "regular protests and demonstrations against the WTO"
(p. 61).

The International Monetary Fund (IMF) and the World Bank

IMF and the World Bank were founded after the World War Il. Their
establishment was mainly because of peace advocacy after the war. These
institutions aimed to help the economic stability of the world. Both of them are
basically banks, but instead of being started by individuals like regular banks, they
were started by countries. Most of the world's countries were members of the
two institutions. But, of course, the richest countries were those who handled
most of the financing and uitimately, those who had the greatest influence.

IMF and the World Bank were designed to complement each other. The
IMF's main goal was to help countries which were in trouble at that time and
who could not obtain money Dy any means. Perhaps, their economy collapsed or
their currency was threatened. IMF, In this case, served as a lender or a last resort

World
The Contemporary
46
 loaned 93
for countries which needed financial assistance. For instance, Yemen
with terrorism.
million dollars from IMF on April 5, 2012 to address its struggle
The World Bank, in comparison, had a more long-term approach. Its main goals
that
revolved around the eradication of poverty and it funded specific projects
especially in poor countries. An example of
them reach their such
helped goals,
istheir investment in education since 1962 in developing nations like Bangladesh,

Chad, and Afghanistan.

Unfortunately, the reputation of these institutions has been dwindling,

mainly due to practices such as lending the corrupt governments or even dictators
and imposing ineffective austerity measures to get their money back.
The Organization for Economic Cooperation and Development (OECD),
the Organization of Petroleum Exporting Countries (OPEC), and the
European Union (EU)
The most encompassing club of the richest countries in the world is the
Organization for Economic Cooperation and Development (OECD) with 35
member states as of 2016, with Latvia as its latest member. It is highly influential,
despite the group having little formal power. This emanates from the member
countries' resources and economic power.

In 1960, the Organization of Petroleum Exporting Countries (OPEC) was

originally comprised of Saudi Arabia, Iraq, Kuwait, Iran, and Venezuela. They
are still part of the major exporters of oil in the world today. OPEC was formed
because member countries wanted to increase the price of oil, which in the
past had a relatively low price and had failed in keeping up with inflation. Today,
the United Arab Emirates, Algeria, Libya, Qatar, Nigeria, and Indonesia are also
included as members.
The European Union (EU) is made up of 28 member states. Most members
in the Eurozone adopted the euro as basic currency but some Western European
nations like the Great Britain, Sweden, and Denmark did not. Critics argue that
the euro increased the prices in Eurozones and resulted in depressed economic
growth rates, like in Greece, Spain, and Portugal. The policies of the European
Central Bank are considered to be a significant contributor in these situations.

North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement (NAFTA) is a trade pact between
the United States, Mexico, and Canada created on January 1, 1994 when Mexico
joined the two other nations. It was first created in 1989 with only Canada and
the United States as trading partners. NAFTA helps in developing and expanding
world trade by broadening international cooperation. It also aims to increase
Chapter 3: Market Integration 47
 America Dy reducing
in North
cooperation for improving working conditions

barriers to trade as it expands the markets of the tnree

r
from developed
manufacturing jobs
creation of NAFTA has caused
e developed nations
transfer to less
OnsCanada or the United States) to
producer prices
In Mexico,
in order to reduce the cost of their oroducts.
eNICO to leave
their tarms. During
and some two million farmers were forced
Opped million Mexicans,
aDout 25% of
causing 20
time, consumer food prices rose,
s
their population, to live in "food poverty."
It has become
impact on US GDP.
Tree trade, however, gave a modest
e One can argue
that NAFTA
Don richer each year due to trade growth.
United states because
was to blame for job losses stagnation in the
and wage
relocate to
U.S. firms to
competition from Mexican firms had forced many
regulations
iexico. This is because developing nations have less government
the United States
dild cheaper labor. This is called outsourcing. As an example,

outsourced approximately 791,000 jobs to Mexico in 2010.

States and about

As for Canada, 76% of Canadian exports go to the United
on the trade with thhe
a quarter of the jobs in Canada are dependent in some way
United States. This means that if NAFTA changes or is eradicated, it would be

devastating for Canada's economy.

Generally, NAFTA has its positive and negative consequences. It lowered

prices by removing tariffs, opened up new opportunities for small- and medium
sized businesses to establish a name for itself, quadrupled trade between the
three countries, and created five million U.S. jobs. Some of the negative effects,
however, include excessive pollution, loss of more than 682,000 manufacturing
jobs, exploitation of workers in Mexico, and moving Mexican farmers out of
business.

History of Global Market Integration

Before the rise of today's modern economy, people only produced for their
family. Nowadays, economy demands the different sectors to work together in
order to produce, distribute, and exchange products and services. What caused
this shift in the way people produce for their needs? In order to understand this,
we will be going back in time, 12,000 years ago.

The Agricultural Revolution and the Industrial Revolution

The first big economic change was the Agricultural Revolution (Pomeranz,
2000). When people learned how to domesticate plants and animals, they
realized that it was much more productive than hunter-gatherer societies. This

World
48 The Contemporary
became the new agricultural economy. Farming helped societies build surpluses,

meaning, not everyone had to spend their time producing food. This, in turn,
led to major developments like permanent settlements, trade networks, and
population growth.
The second major economic revolution is the Industrial Revolution of the
18005. With the rise of industry came new economic tools, like steam engnes,
how
manufacturing, and mass production. Factories popped up and changed their
work functioned. Instead of working at home where people worked for
family by making things from start to finish, they began working as wage laborers
and then becoming more specialized in their skills. Overall, productivity went up,
standards of living rose, and people had access to a wider variety of goods due
to mass production.

However, every economic revolution comes with economic casualties. The

workers in the factories-who were mainly poor women and children worked in
dangerous conditions for low wages. As a result, nineteenth-century industrialists
were known as robber barons-with more productivity came greater wealth,
but also greater economic inequality. In the late nineteenth century, labor unions
began to form. These organizations of workers sought to improve wages and
working conditions through collective action, strikes, and negotiations. Inspired
by Marxist principles, labor unions gave way for minimum wage laws, reasonable
working hours, and regulations to protect the safety of workers.

Capitalism and Socialism

There were two competing economic models that sprung up around the
time of the Industrial Revolution, as economic capital became more and more
important to the production of goods. These were capitalism and socialism.
Capitalism is a system in which all natural resources and means of production are
privately owned. It emphasizes profit maximization and competition as the main
drivers of eficiency. This means that when one owns a business, he needs to
outperform his competitors if he is going to succeed. He is incentivized to be
more efficient by improving the quality of one's product and reducing its prices
This is what economist Adam Smith in the 1770s called the "invisible hand" of the
market. The idea is that if one leaves a capitalist economy alone, consumers will
regulate things themselves by selecting goods and services that provide the best
value.
In practice, however, an economy does not work very well if it is left
completely on autopilot. There are many sectors where a hands-off approach
Can lead to what economists call market failures, where an unregulated market
ends up allocating goods and services ineficiently. A monopoly, for example, is

Chapter 3: Market Integration 49

 arket failure. VWhen a compeuo
has no ners, it
can
charge higher prices without companyabout losing
g0,
mo worrying
monopoly becomes ineficient at least on the consumer
customers. As
ocations
allocations
ese, a e ations like
government might step in and force the nto smaller
Ompanies to increase company to D
competition. Market failures like this are sons most
not purely capitalist societies. For example, the United States
federal and state
governments own and operate
nui a
nools, the
postal service, and the military. Governments also set
dges, Create minimum
workplace safety laws, and provide social supPport programs
unemployment benefits and food stamps. like
wnereas, government plays
larger role in socialism. In
an even a
socialist
system, the means of
production are under collective ownership. It
rejects
capitalism's private
property and hands-off approaches. Instead, in
property is owned by the sOcialism,
government
and allocated to all citizens, not
those with the
money to afford it. Socialism
only
expecting everyone to work for the common emphasizes collective goals,
good and placing a higher value on
meeting everyone's basic needs than on individual
wrote about profit. When Karl Marx first
socialism, he viewed it as a
stepping
stone toward
a
political and economic system in which all communism,
members of a society are
equal. In practice, this has not
played out in the countries that
socially
have
socialism, like Cuba, North Korea, China, and the modeled
their economies on
Marx hoped that as USSR. Why?
economic differences vanished in
government would simply wither away and communist society, the
If anything, the disappear, but that never happened.
opposite did. Rather than freeing the workers-in
the Marxist terms,
proletariat-from inequality, the massive power of the
states gave enormous wealth
power and privilege to
government in these
the retrenchment of political elites. The result is
inequalities along politicalrather than
lines. ber strictly economic
At the same time, capitalist countries
socialist counterparts contributing economically outperformed
to the unrest their
that
downfall of the USSR. Before the tall of the soviet eventually led to the
capitalist countries was about $13,500 dollars Union, the average
per output in
times than in the Soviet countries. But there person, which was almost three
are
namely, greater income inequality. A Study of downsides to capitalism, too,
socialist countries in the
European capitalist countries and
197os Tound that the
income ratio
and the bottom 5% in capitalist countries was about between the top 5%
10 to 1;
countries, it was 5 to 1. Those two moaeis are not the whereas, inn socialist
end of the
a r e living in the
middle of the economic revolution story because we
that followed
Revolution. the Industrial

50 The Contemporary World

The Information Revolution
reduced
information revolution.
Technology has
Ours is the time
of the economy
manufacturing-based
shifted it from a
role of human labor and than
the the production of ideas rather
work and
that is based on service and
to one economy.
Computers
residual effects on our
lot of
This has had a automation
goods. many jobs because of
are beginning to replace
other technologies in union membership.
see the decline
offshore. We also
or outsourcing jobs
teachers.
Nowadays, most unions are for public sector jobs, like
look like? Agricultural jobs, which
What do jobs in a post-industrial society over
have fallen drastically
amassive part of the Philippine labor force,
once were
United States, manufacturing jobs,
In other countries such as the
the last century. twentieth century,
lifeblood of their economy for much of the
which w e r e the
with their many
The U.S. economy began
have declined in the last 30 years.
or secondary
economic sectors. But today,
workers serving in either the primary
on the tertiary
sector or the service industry.
much of their economy is centered
assistants,
such as administrative
The service industry includes every job
because the tertiary
teachers, and lawyers. This is a big and diverse group
nurses,
is defined mainly
economic sectors w e have been discussing,
sector, like all the have
rather than what kinds of jobs it includes. Sociologists
by what it produces m o r e on the social
between types of jobs, which is based
a way of distinguishing
that c o m e with them.
These are the primary labor
status and compensation
includes jobs
market. The primary labor market
market and the secondary labor health
like high incomes, job security,
that provide many benefits to workers,
like
These a r e white-collar professions,
insurance, and retirement packages.
fewer
Secondary labor market jobs provide
doctors, accountants, and engineers.
and lower-level service sector jobs. They
benefits and include lower-skilled jobs
schedules, and typically do not offer
tend to pay less, have m o r e unpredictable
also tend to have less job security.
benefits like health insurance. They
and socialism? No one knows what the next
What is next for capitalism
to look like. Nowadays, a key part
of both our
economic revolution is going
is corporations. Corporations are defined as
economic and political landscape
legal entities and have liabilities that are separate from
organizations that exist as
its members. They a r e their own thing.
More and more these days, corporations
national boundaries which m e a n s that the future
of the
are operating across
countries' economies will play out on a global
Philippine economy-and most
scale.

Chapter 3: Market Integration 51

 Process Questions
1. What are the effects of the information revolution in todays
market? global
What are the effects of multinational Corporations in the
Philippine
economy?
Analyze socialism and capitalism in relation with the
Philippine society.
Which of these
economic systems would work in our
country

Activity: Weighing the Market

The history of global market brought
time. At this positive and negative effects through
point, markets will be assessed
provided that you already had a through your own perspective
and financial good grasp of the different concepts in
globalization. activity will
This
help you understand the benefits
economic
harms of global economic and
processes, structures, and technologies.
1. Listed below the scenarios that have
are
to do with the
pairs, discuss the major economy. In
impacts of these scenarios whether they are
positive or negative (for you, for the
country, or for the Filipinos). The
"Case-by-Case" column can be used. Justify your answers.
Scenario Positive
Negative Case-by-Case

Scenario A:
Agriculture is the main
source of
home province. The government has recently employment in your
farmlands into real estate and exclusive decided to develop the
foreign investors to the country. subdivisions in order to
attract
Scenario B: You decided to
purchase a new
shop based in London. shirt through an online
Scenario C: The Philippine government is
being
from Taiwan pressured
current economic crisis to
import rice by the
countries in the region. and other ned
earby

52 The Contemporary World

 to close,
Scenario D: A multinational corporation decided
whose work
one of its many employees
Unfortunately, your father is
if he were
terminated. However, he could still be employed
has been
or relocate to another
country.
to accept the offer to move
investment funds
has affected the
Scenario E: The global financial crisis
retirement.
ofyour mother that she can use for her
that
are the pros and
cons
2. How did you decide for each scenario? What
came up with the final judgment? Share with
you list down before you
scenario.
the class your responses to each

Global Corporations
both created and been supported by
The increase in international trade has
trade agreements,
regulatory groups, like WTO, and transnational
international All
NAFTA. There is not a single country
that is completely independent.
like their own prosperity.
on international trade for
degree
are dependent to some

need for international regulatory

would be no
Without international trade, there international trade at the
Without the international regulatory groups,
groups. trade regulatory groups and
massive scale would be impractical. The
current between countries. They
agreements regulate the flow of goods and services
customs procedures easier.
tariffs, which are taxes on imports, and make
reduce
borders much more feasible.
This makes trading across national
often benefit private industries the
These international trade agreements
and services across many different
most. Companies can produce their goods
United
have a backpack that was designed in the
countries. For instance, you can
it was put together in Mexico
States but the materials came from China, and
before it was shipped back to the United States to be sold.

These companies that extend beyond the borders of one country are called
They are also referred
multinational or transnational corporations (MNCS orTNCS). take
as global corporations. They intentionally
surpass national borders and
to countries to manufacture, distribute,
advantage of opportunities in different are ubiquitous, like
market, and sell their products. Some global corporations
still market themselves as American
McDonald's or Coca-Cola, and yet, they based in the
Others be surprising like General Electric, which is
can
companies.
business and employees working in
United States but has more than half of its
Motor Company, the classic American
other countries. Another example is Ford
in Michigan that manufactures cars worldwide.
car company, headquartered

Chapter 3: Market Integration 53

 asnational corporations have a significant role in the goDai economy.
n a v e greater production advantages than an entire nation. They intluence
economy and politics by donating money to specific political campaigns or
DDyists. They can even influence the global trade laws of the international
regulatory groups.
ulobal corporations often locate their factories in countries which can
provide the cheapest labor in order to save up for expenses in the making ofa
Prouct. As a result, developing nations will provide incentives, like tax-free trade
zones or cheap labor. The companies will set up shop in their country in hopes of
Dnging jobs and industry to beleaguered agricultural areas. This promotes more
rapid advances in the developing nation because of the ideas and innovations
brought over from the industrialized nations. It also makes nations aroundthe
worid more interdependent, which minimizes the potential for confict.

In the end, however, these incentives often hurt the working population of
the developing nation. The upper classes may benefit from the business of these
corporations but the people working in the factories are exploited as their wages
are cut. In addition, they are often prohibited from unionizing. It can even result
in sweatshop conditions with long working hours, substandard wages, and poor
working conditions. If the labor laws in one country become too restrictive to
the TNCs, they can just move their factory to a new country,
leaving widespread
unemployment in their wake. Setting up factories in these developing nations
may also hurt the core country where the TNC is based because many potential
jobs are being sent abroad. The same thing happens when companies outsource
their labor to other countries. Outsourcing has been enabled
by technological
advances, allowing immediate communication across the world and the ease of
transporting people, goods, and information. When companies find people in
other countries willing to work for a lower wage, they will often
employ them,
which is good for the company because they save money, and it is for the
good
people in other countries because they now have a job. But it also means that the
people in the core country are losing jobs and having difficulty
finding new ones.
There seems to be a lot of
negative effects of globalization from
transnational corporations. Trade does promote the self-interested agendas of
corporations and give them autonomy. The global corporations also influence
politics and allow workers to be exploited. There are, however, positive effects.
These include better allocation of resources, lower prices for products, more
employment worldwide, and higher product output.

country experiences trom international trade are not only

The changes a

economic. Many of the cultural changes are as important and sometimes,

even more obvious than the economic Changes the nation can experience. As
international trade becomes easier and more widespread, more than just goods

World
54 The Contemporary
and services are exchanged. Cultural practices and expressions are also passed
between nations, spreading from group to group. This is called diffusion. Ideas
and practices spread from where they are well known and frequently apparent

to places where they are new and not often observed. In the past, exploration,
the means for
military conquests, missionary work, and tourism provided
increased the speed of
the trading of ideas. But technology has exponentially
transfer of ideas
diffusion. Nowadays, mass media and the Internet allow the
transmission of
almost instantaneously. This is most commonly seen in the
culture, which
scientific knowledge and the spreading of the North American
dominates the Internet.
with the Internet
International trade and global corporations, along
because people and
and moreglobal processes, contribute to globalization
their money with them
corporations bring their own beliefs, their traditions, and
and capital can then be
when they interact with other countries. These ideas
cultures and economies of
incorporated in other countries, and thus, change the
these foreign nations.

Process Questions

multinational corporations.
1. Analyze the "global" nature of
Do you think the positive effects of multinational corporations
2.
not?
outweigh the negative effects? Why why
or

What do you think are the ways to lessen,

if not eliminate, the negative
3.
multinational corporations?
consequences of

Activity: Film Viewing-The Corporation

The Corporation is
modern-day corporation.
criticisms to corporate
film that examines the
an award-winning documentary
and provides
It assesses the corporation as a person
business practices. It also describes the contemporary

corporation with a clinically diagnosed psychopath.

learning experience for you. Since corporations are
This film will serve as a
can help you appreciate the nature of these
large entities, this documentary
organizations through a simple and more
understandable manner

Chapter 3: Market Integration 55